Cyprus says 'very close' to revising tax treaty with India

Last month, a senior Indian government official said India hopes to revise tax treaty with Cyprus in line with Mauritius by the year-end.

PTI|

Updated: Jun 05, 2016, 12.59 PM IST

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Last month, a senior Indian government official said India hopes to revise tax treaty with Cyprus in line with Mauritius by the year-end.

NEW DELHI: In a step forward, Cyprus has said it is "very close" to revising the bilateral tax treaty with India as the island nation has accepted "in principle" proposals made by the Indian side on taxing capital gains.

Cyprus, a source of significant foreign fund flows into the country, said rising importance of India, both as the "largest emerging economy and a major security player in the new geopolitical chess game, necessitated a serious re-appraisal and upgrading of the bilateral relationship".

As part of larger efforts to curb illicit fund flows, Indian government has been working on revising tax treaties with various countries, including Cyprus and Singapore. Last month, India announced revising taxation agreement with Mauritius -- a major source of FDI -- that would allow levy of capital gains tax on investments coming from that nation.

"Cyprus and India are very close to concluding a revised Double Taxation Agreement. The Cyprus authorities have expressed their readiness to the Indian authorities to finalise the revised agreement.

"After final and formal approval by both sides, the new agreement will be ready for finalisation, signing and entry into force," a Cyprus government official told PTI.

Responding to a query on whether both sides have been able to resolve pending issues related to taxation, the official said, the Cyprus authorities have accepted the main proposals submitted by the Indian side, as an indication of good faith.

"The few pending issues, including on source-based taxation of capital gains from alienation of shares, have been accepted by both sides, in principle. Therefore, they are expected to be formally agreed upon soon," the Cyprus foreign ministry official said in e-mailed responses.

Expressing hope on finalising amendments to the tax treaty with India in "the next few months", the official also said bilateral ties have been on a "new and ambitious trajectory" since the new government came to power at the Centre in May 2014.

Last month, a senior Indian government official said India hopes to revise tax treaty with Cyprus in line with Mauritius by the year-end.

From April 2000 till March 2016, India received Foreign Direct Investment (FDI) worth Rs 42,680.76 crore from Cyprus, as per latest data available with the Department of Industrial Policy and Promotion.

According to the Cyprus official, the island nation have sent to the Indian authorities their acceptance regarding Article 13.

Under the double taxation convention between the two countries, Article 13 pertains to technical fee -- payments made to any person who is not an employee of the entity making the payments.

"Conclusion and finalisation of those amendments should be achieved in the next few months, at the latest, with a view to signing the revised double taxation agreement," the official noted.

The official noted that new partnerships in economic sectors, energy and renewables, agriculture as well as defence cooperation, "including maritime security, intelligence exchange and counter-terrorism, are in the order - all of which have significant economic benefits, over and above the political and security advantages for each side".

In this regard, the Joint Economic Committee would be meeting on June 8 in order to elevate the relationship to a modern economic plateau, actively pursuing partnerships and promoting mutually beneficial investments, the official added.

India and Cyprus have long standing ties dating back to the 1950s.

Noting that India has been a reliable and consistent partner of Cyprus, the official said co-operation on issues of common interest is ongoing in the context of international organisations, notably at the United Nations and the Commonwealth.

"Third, in bilateral relations, there is much at stake through the conclusion of a number of important bilateral agreements (Air Services, Merchant Shipping, Avoidance of Double Taxation, Social Security, Transfer of Prisoners, Cooperation in Legal Matters), not least because of the significant economic benefits for both sides," the official said.